Everybody Hates Performance Appraisals – What to Do?

I read an article today from the Wall Street Journal by Dr. Samuel Culbert of the Anderson School of Business at UCLA. In the article, the author states:

“This corporate sham [performance appraisal] is one of the most insidious, most damaging, and yet most ubiquitous of corporate activities. Everybody does it, and almost everyone who’s evaluated hates it. It’s a pretentious, bogus practice that produces absolutely nothing that any thinking executive should call a corporate plus.”

I recommend you read the rest of the article. You also might want to refer to this video interview with the author from 2008 – you can find it here.

It is true that most folks dislike the performance management rituals that exist in their organizations. For the most part, few managers are very good at providing meaningful feedback, and there is a “check the box” attitude from managers and staff alike. And the problem is with the whole concept — it’s not just a question of making a better form, or applying the latest Web 2.0 technology to automate a bad process. That just results in a very efficient, but no more effective, bad process.

I will leave it to Dr. Culbert to describe what else is wrong with performance appraisals. Instead, I would like to challenge you to think about a couple of concepts which could actually improve performance management for everyone.

At Birches Group, we did some research a few years ago for a client, which involved interviewing staff in every corner of the world about their company’s performance management system. We asked employees if they liked performance appraisals as they were conducted in the organization; they did not. Then we asked if they could identify the “good” and “bad” performers; without exception, they could. So we started investigating how it was possible they could figure out who was a strong performer and who was not, despite the formal performance management system they disliked so much.

The answer was incredibly simple. For the “good” performers, the answers to these questions were YES:

Do you have good ideas?

Do you listen and adapt your ideas to client/customer needs?

Can I count on you to deliver?

Are you an effective team player?

That’s it. Our research indicated that if we could answer these four questions we would have enough information to evaluate the performance of an individual in any organization.

Think about it. Apply it to your company. Does it work? Can you think of anyone in your company that can answer yes to all of these questions? Are they a good performer? Imagine the implications of such a simple approach.

We built a system, called Community™, which is based on this simple model. With just four questions to evaluate performance, we gather feedback from employee, manager and peers (inside or outside the company). The system is straightforward and requires no training (it has to be, since non-employee peers are invited to participate in the process, and there is no way they could be trained). And, surprise, it actually works!

Another key issue with performance management is how it is used in tandem with rewards – usually merit pay and short-term incentives. “Pay for Performance” is the rule now in most organizations, but stop and think about how performance really influences pay.

In most companies, salary ranges or bands are defined using a combination of external market data and internal equity issues. Once these bands are defined, the range of base salary is locked in. Performance management is then used to help determine the following:

An annual “merit” increase – this is an annual increment based on an employee’s performance. In many developed countries, merit budgets have been hovering around 3% or less for many years. So, companies are expending tremendous resources to determine if an employee should be eligible for 2.5% to 5.0% (approximately) based on their performance rating. Is it worth it?

Annual short-term incentives – these bonus payments are likely based primarily on company financial results. There is usually an individual component too, but often it’s very small. Again, is it meaningful?

Should all staff be treated equally when it comes to performance management? Certainly all employees should receive feedback on their performance from their supervisor. But should performance ratings be used for “pay for performance” across the board?

We sometimes think about this as a wedding cake. As you know, the base of a wedding cake is tall and wide. Additional tiers of the cake are shorter and narrower, and as you go higher and higher up the cake the tiers get even smaller. We can draw an analogy between a wedding cake and broad organizational categories.

For example, the lowest tier might correspond to support staff, for whom rewards could easily be designed based primarily on basic metrics such as attendance, coupled with tenure-driven increases. Yes, a lot like civil service, but perhaps more appropriate for these positions.

The next level of the cake covers core professionals. For this group, the primary reward mechanism could be related not to attendance or tenure, but the demonstration of new competencies related to their job requirements. This group would benefit from clearly defined competency milestones and peer feedback, for example.

The next level (or two) would be reserved for managers and executives – the folks who are managing the business operationally and strategically. For this group of staff, some pay should be at risk, and rewards should be based on how well the company does in meeting it’s overall performance objectives. Primarily financial objectives, but also consideration of leadership strengths and other key decisions made by the management team need to be considered. Clearly, though, it is these groups that have the most direct influence over company results. In other words, perhaps when it comes to pay for performance, one size does not fit all.

All employees deserve regular, constructive feedback about their performance. This is not a function of the system you use or the form design; rather, it needs to be embedded into the culture of your organization, to encourage frank conversation, open and honest exchanges between managers and staff, with the aim to celebrate the good (as opposed to focusing exclusively on the best). Rethinking how performance ratings are used to administer pay and rewards is long overdue in most organizations.

The article on performance appraisal being an annual chore certainly seems to ring true in most organizations and I like Warren’s comments. It is also interesting to debate about whether a high performing and energetic, motivated individual is going to have a range of Performance Ratings over the years. In my experience the same top tier people are consistent in their annual performances unless something radical has happened to the trading environment.
My belief is that the higher up the leadership ladder the higher the rating factor weighting should be on “key leadership behavior” indicators.

Thanks for commenting, Noel. I agree with your statement about key leadership behaviors. In fact, our Community solution does exactly what you describe – defining good performance with respect to each of the four questions by linking it to organizational level. So, for example, on teamwork, an individual contributor level individual is evaluated as a team player for his/her contribution to the team; a manager who leads the team for their day-to-day operational skills on the team; and the senior executive who sponsors the team is evaluated on how effectively they garnered resources for the team and exposure and support for the team’s mission and outcome.

Performance appraisal is rather like Winston Churchill’s comment about democracy: “Its the worst political system, except for all the others.”

Performance appraisal has a strong hygiene component to it. Its absence leads to significant disatisfaction with the process of making pay adjustments. I’m working with a client that is moving from annual across-the-board increases in the same percentage amount for all employees. An employee survey and follow-on focus groups elicited strong condemnation for that lack of a method to individually influence their pay increases. They wanted the ability to have their reward differentiated by their own efforts.

The problem that is so correctly identified by Dr. Culbert and Warren is not the fact of appraisal but the mediocrity by which it is applied. It takes time and focused effort, principally by managers, to do effective appraisals. Also, once-a-year appraisal is not managing performance effectively. With my client, I’ve taught the managers that they manage performance every day, via direction, guidance and feedback. Roll that up into a periodic review and, voila, you have effective performance appraisals.

They can then also be used for reward decisions. Merit budgets have been modest for the past 15 years. There is no correlation between effort to appraise and the size of the reward. Appraisal is a valued and critical management function, regardless of the size of your merit budget.

While I don’t disagree that most appraisal practices are poorly executed, I don’t agree to throw the baby out with the bath water. Learn how to effectively manage performance, do it consistently, take the time to do it right and your employees will welcome the process and the outcomes.

Hi Warren,
I do agree with some of the points you make and also the article. However, I do think that the issue of performance management may not be popular at times because alot of the time companies don’t really know what it is they are exactly appraising nor understand the menaing of appraisal. It becomes a process or a practice meaningless and a pain to managers and employees.

To me it starts with a number of things such as making sure managers and employees understand why they are being asked to do appraisals. The focus should be on evaluation, 2 way feedback, recognition, development and reward. How well and what system is used is dependent on the culture of the organisation. HR’s key role should be to facilitate the process well.

I do agree, I don’t think appraisals should only take place annually, feedback should be part of everyday operational work / work culture e.g. one2one meetings, team meetings, bi-monthly or quarterly reviews etc.

On the issue of pay rewards linking to performance appraisals, I think it works for some companies and not others. It can complicate the process. I think people who perform well should be rewarded I am not sure if I think it should be linked to the appraisal process on its own. A decision on pay increase should take appraisal outcomes into account but the appraisal outcome should not be the only contributing factor. Simplicity in process and matrics etc is also key. I have worked with organisations where when I reviewed their processes and I wondered how anybody got any work done?

Thanks so much for your insights, Anita. Clearly, this is a complex topic with many variations on the theme. But it seems you do agree that fundamentally, simplicity and clarity are two things which can enhance the effectiveness of appraisals.

Warren, I have liked your article which is thought provoking.
If performance appraisal is taken as a management tool for developing employees based on the rating of their skills & competencies, it is a generally a welcome approach. But the moment its focus is on evaluating performance & rewarding people, it becomes an eye-sore. Why? Perhaps because the appraisers are perceived to be subjective. A possible remedy to this is to plan performance evaluation based on clearly defined goals & objectives and to have a continuous tracking of achievements against each goal assigned to an employee. This is possible only with the use of technology. Many organizations are effectively using automated systems which cater both for goal-based performance evaluation & competencies based employee development plans.
All that I am emphasizing upon is that systems are perceived to be bad till these are non- transparent. Technology is available today to make performance appraisal systems acceptable if the managements are not allergic to transparency.

Thank you for your comments. I fully agree that a sound and transparent process can be enhanced by the right technology solution and ensure that it is also efficient and well-integrated into the organization.

We may disagree a bit about how best to use aligned goals and objectives as the basis for performance. While such aligned goals are key for annual business planning and ongoing operations, we believe that “performance” should be measured more holistically by answering the four questions in the post. The outcomes of those business plans are the basis for the answer to the question “Can I count on you to deliver?” If you miss your goals, your boss and customers would agree that, at least this time, the answer is no or at least not always.

I think it is a great article. Thank you for giving me new approach. I really appreciate your work.

My only concern is about you terminology of “good” and “bad” performer. I understand what you mean however I am afraid that somebody who is not so much familiar with HR could get it wrong. It would be just great to highlight somewhere that performance appraisal is not about finding good or bad performers, but more about improving performance, helping employees develop and identify barriers to better performance. I know you already know all of that but it would be good enough to put emphasis in the article that the point of performance management is gathering solutions, finding causes, identifying barriers and becoming aware of a performance gap. That’s it J

Performance appraisals for the 2000’s: they work! It’s amazing that such dinosaurs (performance review systems, not the people) are still around. They must be, however, since a book has been published called “Get Rid of Performance Reviews’. Yet despite the outcry against reviews, there’s nothing wrong with them that can’t be fixed by getting managers off of center stage. Top management can fix the basic problems the review system faces.
Critics argue that performance reviews not only don’t accomplish what they’re supposed to do – that is, improve performance, enhance employee skills and achieve planned outcomes – they have unintended negative consequences. In many cases, unfortunately, that’s true. But it doesn’t have to be that way. What companies need to abolish is not performance review itself, but the idea that it’s a “management tool. Here are some practiced paradigms that must be discarded:
Performance Review is designed, as the name suggests, in support of managers. If you believe this, your management is one of the roadblocks to exceptional performance. The most useful performance review support work relationships between employees (managers too are employees). Both parties need to address the question of how to best serve the goals and outcomes and align their work efforts.
Performance review is a management tool. Managers are not necessarily the best qualified to assess their staff’s accomplishments. In fact, they may have a very limited or biased view. A more complete and accurate picture results when employees and managers seek feedback from a variety of customers, team leaders, professional peers, and others inside or from outside the unit.
Performance reviews include judgments from a “higher authority”. Judgments produce compliant workers – people who are told what to do – not innovative ones. People hate performance reviews because most of them are fault-finding. How much better to ask, “What did we learn from this? What can we each do different the next time?”
The manager is responsible for obtaining input from the employees. 21st century employees can’t assume a passive role in performance review, providing “tough-minded” self-assessments and valuable insights only on request. They must take the initiative, soliciting feedback from their managers and others. No risk taking to solicit the complete picture and no learning means no improvements.
Managers should be trained in performance reviews, then prepare their employees for the process. If performance review is to be a productive partnership with employees taking the active role and both parties committed to exchanging knowledge and ideas, managers and employee need to be trained together.

I like this article and it is true that everybody hates perf appraisal but they hate perf appraisal because it is carried out very poorly and there are various loopholes in its process. If it will be carried more professionally with more transparency, consistency and continuous feedback …then it will add some value.